Intelligent Management UK Ltd v Revenue & Customs [2011] UKFTT 704 (TC) (02 November 2011)
[2011] UKFTT 704 (TC)
TC01541
Appeal number: TC/2011/00396
P35
return—Penalty for late return (Taxes Management Act 1970 s.98A)—Reasonable
excuse—Appeal dismissed
FIRST-TIER TRIBUNAL
TAX
INTELLIGENT
MANAGEMENT UK LTD Appellant
-
and -
THE
COMMISSIONERS FOR HER MAJESTY’S
REVENUE
AND CUSTOMS Respondents
TRIBUNAL:
Dr Christopher Staker (Tribunal Judge)
The Tribunal determined the
appeal on 20 October 2011 without a hearing under the provisions of Rule 26 of
the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (default
paper cases) having first read the Notice of Appeal dated 7 January 2011, HMRC’s
Statement of Case dated 25 March 2011, and other papers in the case.
© CROWN COPYRIGHT
2011
DECISION
Introduction
1. The
Appellant appeals against penalties totalling £400, imposed in respect of the
late filing of its P35 employer’s annual return for the tax year 2009/10. The
deadline for filing the return was 19 May 2010.
The relevant legislation
2. Regulation
73(1) of the Income Tax (Pay As You Earn) Regulations 2003 imposes on an
employer the obligation to deliver to HMRC a P35 return before the
20th day of May following the end of a tax year. Paragraph (10) of that
regulation provides that Section 98A of the Taxes Management Act 1970 (the “TMA”) applies to paragraph (1) of that regulation.
3. Section
98A of the TMA relevantly provides as follows:
(2) Where
this section applies in relation to a provision of regulations, any person who
fails to make a return in accordance with the provision shall be liable—
(a) to
a penalty or penalties of the relevant monthly amount for each month (or part
of a month) during which the failure continues, but excluding any month after
the twelfth or for which a penalty under this paragraph has already been
imposed, ...
(3) For
the purposes of subsection (2)(a) above, the
relevant monthly amount in the case of a failure to make a return—
(a) where
the number of persons in respect of whom particulars should be included in the
return is fifty or less, is £100, ...
4. Section
100(1) of the TMA authorises HMRC to make a determination imposing a penalty
under s.98A of the TMA in such amount as it considers correct or appropriate.
Section 100B of the TMA provides for an appeal against the determination of
such a penalty. Section 100B(2)(a) provides that in the case of a penalty
which is required to be of a particular amount, the Tribunal may:
(i) if
it appears ... that no penalty has been incurred, set the determination aside,
(ii) if
the amount determined appears ... to be correct, confirm the determination, or
(iii) if
the amount determined appears ... to be incorrect, increase or reduce it to the
correct amount.
5. Section
118(2) of the TMA provides as follows:
(2) For
the purposes of this Act, a person shall be deemed not to have failed to do
anything required to be done within a limited time if he did it within such
further time, if any, as the Board or the tribunal or officer concerned may
have allowed; and where a person had a reasonable excuse for not doing anything
required to be done he shall be deemed not to have failed to do it unless the
excuse ceased and, after the excuse ceased, he shall be deemed not to have
failed to do it if he did it without unreasonable delay after the excuse had
ceased.
The arguments of the parties
6. The
penalty notice imposing penalties of £400 (4 monthly penalties of £100 each)
was dated 27 September 2010. The notice stated that “You have been charged
penalties from 20 May 2010 to 19 September 2010”.
7. A
letter from UKmigrate.com dated 8 October 2010 stated that the Appellant was no
longer trading, and stated that the return was filed online but that the author
of the letter had no confirmation letters stating that the return had been accepted.
The letter requested HMRC to confirm that this was the case and to withdraw the
penalty.
8. A
further letter from UKmigrate.com in November 2010 stated that the writer of
that letter personally did the return online. It stated that being a
first-time user, he did not keep a printout of the submission “as I did not
know how to and assumed as there were no warnings of any transmission failure,
the submission had been successful”. It further stated that the first that was
known that the submission had not gone through was when the penalty notice was
received, that the Appellant had encountered problems with the online filing
system, and that the Appellant would not have gone to all the trouble of
registering online for it then to not submit the return.
9. There
were further exchanges of correspondence between UKmigrate.com and HMRC, in
which the former provided further documents, and in which the latter maintained
the position that these documents did not establish that the return had been
filed.
10. The Appellant’s
notice of appeal to the Tribunal dated 9 January 2011 states, in the grounds
for appeal, that the Appellant updated its P14 submissions on 17 May 2010, and
having done this, received an online P35 summary, which stated that there was
no tax liability to HMRC. It is stated that this “was regarded as completion
of the matter”, and that the levy of a penalty in the circumstances was
unjust. It is added that “We will be submitting further documentary evidence
at the time of the hearing”. The notice of appeal adds that “We submit that we
have complied with the provisions, therefore there is no justification for
levying a penalty on us”.
11. The HMRC
statement of case states amongst other matters that “HMRC’s Online Services
have confirmed that although the appellant accessed the system on 12 May 2010,
14 & 17 May 2010 and 21 December 2010 they did not submit the return until 12/01/11”.
HMRC submit that filing a P35 online is a straightforward process, that HMRC
provides guidance on how to file online and what to expect if the submission is
not completed correctly, and that a large number of employers have filed their
returns online successfully since 2004/05.
12. As observed
above, the Appellant’s notice of appeal stated that “We will be submitting
further documentary evidence at the time of the hearing”. However, the
Appellant was notified by the Tribunals Service by letter of 18 February 2011
that the case had been assigned to the “default paper” category, which meant
that the case would be considered on the papers unless the Appellant requested
an oral hearing. That notification was in accordance with Rule 23(1)(b) of the
Tribunal’s Rules, and made clear that it was still open to the Appellant to
request a hearing if the Appellant so desired. Under Rule 26(3), it was open to
the Appellant to request a hearing within the time limit for submitting a reply
to the HMRC statement of case. After the HMRC statement of case was filed, the
Tribunals Service sent the Appellant another letter dated 28 March 2011,
advising the Appellant that it could within 30 days submits a reply, in which
the Appellant could request an oral hearing. No reply or request for a hearing
was submitted by the Appellant.
13. On 25 August
2011, the Tribunal of its own motion issued the following further directions:
1. Within
21 days of the date of release of these directions, HMRC may file with the
Tribunal and serve on the Appellant any further evidence and/or submissions on
which HMRC wish to rely in this appeal, in particular any evidence in support
of the contention on page 4 of the HMRC statement of case that “HMRC’s Online
Services have confirmed that although the Appellant accessed the system on 12
May 2010, 14 & 17 May 2010 and 21 December 2010 they did not submit the
return until 12/01/2011”.
2. Within
21 days of the date of service of any HMRC evidence or submissions in
accordance with Direction 1, the Appellant may file with the Tribunal and serve
on HMRC any further evidence and/or submissions on which the Appellant wishes
to rely in this appeal, in particular, clarification of the date on which the
Appellant says that the return was filed and clarification of the reasons why
the Appellant says no penalty should be imposed.
3. The
Tribunal will thereafter proceed to give its determination in this appeal.
14. A further
submission was received from HMRC pursuant to those directions on 6 September
2011. No further submissions or evidence have been received from the
Appellant.
15. The HMRC
submission contains an e-mail from the HMRC PAYE Service Management Team,
containing printouts from its “Event Query” system, which is said to give
details of times of log-ins, submissions and other events. This printout, read
with the accompanying explanations from the PAYE Service Management Team,
indicates that the Appellant registered and was issued with an activation code
on 5 and 6 May 2010, logged into the online system and activated the service on
12 May 2010 and then logged out again, logged in on 14 May 2011, 17 May 2011,
21 December 2011, 22 December 2011, and that on 12 January 2011 the Appellant
logged in twice, submitted a return and then logged in again on the same day.
The system records only a single return being filed, on 12 January 2011, at
15:57.
The Tribunal’s view
16. The Tribunal
must determine questions of fact on the evidence before it on the basis of the
balance of probability. The Tribunal is satisfied that the parties have been the
opportunity to present all evidence on which they wish to rely to the Tribunal.
17. If a return is
submitted late and a late filing penalty is imposed, the burden of proof is on
the Appellant to establish a reasonable excuse. However, the Appellant is only
put in the position of having to establish a reasonable excuse if HMRC
discharges the initial burden of establishing that the return was submitted
late.
18. On the evidence
provided, the Tribunal is satisfied on a balance of probabilities that the
return was not filed until 12 January 2011.
19. In respect of
the issue of reasonable excuse, the information provided by the Appellant is
not clear or detailed as to what exactly occurred. The letter from
UKmigrate.com in November 2010 stated that the writer at least attempted to
submit the return online, and was unaware that the attempted submission was
unsuccessful until the penalty notice was received. The Appellant’s notice of
appeal states on the other hand that the writer updated its P14 submissions on
17 May 2010, and that having received an online P35 summary which stated that
there was no tax liability, the writer regarded this as “completion of the
matter”. This suggests that the Appellant did not in fact file a P35 online
because the Appellant assumed, rightly or wrongly, that the Appellant did not
need to do so in the light of the fact that an online P35 summary indicated
that there was no tax liability.
20. The Tribunal has
had regard to HMD Response International v Revenue & Customs [2011] UKFTT 472 (TC) (“HMD”). The primary finding in that case was that there
was no default in that case. The main alternative finding was that even if
there was a default, the appellant had established a reasonable excuse for the
entire period of the default given that its agent honestly and genuinely
believed that the filing had taken place within the deadline. At paragraph 34
of that case, the Tribunal then reached a further alternative finding that “we do not consider that any penalty would be recoverable over
and above the £100 penalty for the first month, unless HMRC proves (the onus
being upon it) that even if such a penalty notice, which would have acted as a
reminder, had been issued, the default would nonetheless have continued”.
21. In the present
case, the Tribunal is satisfied that there was a default.
22. If honest and
genuine belief that the filing had taken place within the deadline can be a
reasonable excuse, the Tribunal considers that there must be some reasonable
basis for the honest and genuine belief. The Tribunal does not consider that
that an irrational or unreasonable belief, even if honest and genuine, would
suffice.
23. The Tribunal
also considers that there is an onus on the person obliged to submit a return,
if filing online, to make reasonable and diligent efforts to obtain the
necessary information on the procedure for filing online, and reasonable and
diligent efforts to follow that information fully and carefully.
24. On the basis of
the limited information provided by the Appellant, the Tribunal is not
satisfied that the Appellant attempted to file the P35 online within the time
limit (the notice of appeal, as indicated above, suggests that the Appellant
did not). Even if the Appellant did attempt to file the P35 online within the
time limit, the Tribunal is not satisfied on the limited information provided
by the Appellant that the Appellant made reasonable and diligent efforts to
obtain the necessary information on the procedure for filing online, and/or
reasonable and diligent efforts to follow that information fully and carefully.
25. As to the
further alternative finding in paragraph 34 of HMD quoted above, it is
considered that this was an obiter dictum. On the basis of the primary
finding and main alternative finding in that case, the issue of whether a
penalty in excess of £100 could be imposed simply did not arise.
26. In any event,
the penalty notice in the present case was issued on 27 September 2010. The
Appellant responded to it in a letter dated 8 October 2011, so it had clearly been
received it by then. Even then, the P35 was not filed online until January
2011. Thus, in the present case, even after the penalty notice had been
issued, the default did continue for more than an additional two months.
27. The Tribunal therefore finds
that the Appellant has not established circumstances that would amount to a “reasonable
excuse” for late filing under s.118(2) of the TMA.
The Appellant has not challenged the amount of the penalty imposed, in the
event that there is no reasonable excuse.
Conclusion
28. Thus, under s.100B(2)(a)(ii)
of the TMA, the Tribunal confirms the penalties and dismisses the appeal.
29. This document
contains full findings of fact and reasons for the decision. Any party
dissatisfied with this decision has a right to apply for permission to appeal
against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal)
(Tax Chamber) Rules 2009. The application must be received by this Tribunal
not later than 56 days after this decision is sent to that party. The parties
are referred to “Guidance to accompany a Decision from the First-tier Tribunal
(Tax Chamber)” which accompanies and forms part of this decision notice.
DR CHRISTOPHER STAKER
TRIBUNAL JUDGE
RELEASE DATE: 2 NOVEMBER 2011
